Wells Fargo & Company

Welcome and thank you for joining the Wells Fargo second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1. If you would like to withdraw your question, press star 2. Please note that today's call is being recorded. I would now like to turn the call over to your host, John Campbell, Director of Investor Relations. Sir, you may begin the conference.

Good morning. Thank you for joining our call today where our CEO, Charlie Scharf, and our CFO, Mike Santamassimo, will discuss second quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our second quarter earnings materials, including the release, financial supplement, and presentation deck are available on our website at wellsfargo.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8K filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charlie.

Thanks very much, John. Good morning. I'll make some brief comments about our second quarter results, the operating environment, and update you on our priorities. I'll then turn the call over to Mike to review second quarter results in more detail before we take your questions. Let me start with some second quarter highlights. We earned $3.1 billion in the second quarter. Our results included a $576 million impairment of equity securities, predominantly in our venture capital business due to market conditions. Revenue declined as growth in net interest income driven by rising interest rates and higher loan balances was more than offset by lower non-interest income as market conditions negatively impacted our venture capital, mortgage banking, investment banking, and wealth management advisory businesses. We continued to execute on our efficiency initiatives, and our expenses declined from a year ago, even with inflationary pressures and higher operating losses. We had broad-based loan growth with both our consumer and commercial portfolios growing from the first quarter and a year ago. Credit performance remains strong. Our allowance reflected an increase due to loan growth. While we're monitoring risks related to continued high inflation, increasing interest rates, and the slowing economy, which will impact our customers, consumers and businesses have been resilient so far. When looking at simple averages across our entire portfolio, consumer deposit balances per account increased from first quarter and a year ago and remained above pre-pandemic levels. Overall, our consumer deposit customers' health indicators, including cash flow, payroll, and overdraft trends, are not showing elevated risk concerns. However, we're closely monitoring activity by segment for signs of potential stress, and for certain cohorts of customers, we have seen average balances steadily decline to pre-pandemic levels following the final federal stimulus payments early last year, and their debit card spend has also been declining. Overall debit card spending was up 3% compared to a year ago when consumers received stimulus payments, and inflation appears to be impacting certain categories of spending including a 26% increase in fuel driven by higher prices, while discretionary categories like apparel and home improvement spending were down double digits, driven by fewer transactions. Credit card spend increased 28% from a year ago, above the industry trend driven by the new products we launched last year, with double-digit increases across However, spending, while still strong, started to slow in May and June. Consumer credit card utilization rates remained below pre-pandemic levels, payment rates remained strong, and delinquency rates remained low. Our small business portfolio continues to perform well in the aggregate in both delinquencies and losses, leading indicators such as payment rates, deposit levels, Utilization and revolving debt trends do not yet indicate signs of stress. Loan demand from our commercial customers remains strong with broad-based balance and commitment growth. Our commercial customers' credit performance remains strong with exceptionally low net charge-offs and non-accrual loans were at their lowest level in over 10 years. However, we are monitoring early warning indicators across portfolios, including cash flow activity, credit line utilization rates, and industry fundamentals for inflation impacts. Now let me update you on progress we've made on our strategic priorities. Our work to build an appropriate risk and control infrastructure is ongoing and remains our top priority. But we also continue to invest in our businesses to better serve our customers and to help drive growth. This week, we launched our fourth new credit card offering in the past year, Wells Fargo Autograph. Our latest card reflects our momentum in growing our consumer credit card business, with new accounts up over 60% from a year ago. We're focused on delivering competitive offerings, and our new reward card provides three times points across top spending categories, including restaurants, travel, and gas stations. We continued to improve the digital experience in the second quarter with the relaunch of Intuitive Investor, our automated digital investing platform. We simplified the account opening process and created a faster and better experience for both new and experienced investors. During the second quarter, we began rolling out Wells Fargo Premier, which provides differentiated products and experiences focused on strengthening and growing our affluent client relationships. We are working towards offering one set of products and services that are tailored to the needs of these customers, regardless of where they sit within our individual businesses. We will be rolling out more enhancements in the coming quarters to provide a more compelling offering for Premier clients. We started to roll out overdraft policy changes late in the first quarter, which included the elimination of fees for non-sufficient funds and overdraft protection transactions. Additional changes will be rolled out in the second half of this year, including providing customers who overdraw their account with a 25-hour grace period to cure a negative balance before incurring an overdraft fee, giving early access to eligible direct deposits, and providing a new, easy, short-term credit product. We expect these changes will help millions of consumer customers avoid overdraft fees and meet short-term cash needs and we continue to review other ways we can help consumers manage their finances. We also continue to invest to better serve our commercial customers, and early in the second quarter, Tim O'Hara joined the Corporate Investment Bank from BlackRock as head of banking. Tim's expertise and insights will help us maximize our potential and achieve even greater partnership and strategic dialogue with our corporate and institutional clients. And he complements the strong leadership team in our markets and commercial real estate businesses who have helped us navigate recent market volatility. We believe we have a significant opportunity to serve our existing commercial customers with corporate and investment banking products in a way that works within our existing risk tolerance. We also believe that for us to be successful as a company, we must consider a broad set of stakeholders in our decisions and actions. Last week, we announced that Otis Raleigh will be joining Wells Fargo from the Rockefeller Foundation as the head of social impact, leading community engagement and enterprise philanthropy, including the Wells Fargo Foundation. We continue to move forward in the area of ESG with the announcement of our 2030 reduction targets for greenhouse gas emissions attributable to financing activities in the oil and gas and power sectors. As homeownership remains out of reach for too many families, we announced an effort to support new home construction, renovation, and repair of more than 450 affordable homes across the U.S. in collaboration with Habitat for Humanity and Rebuilding Together. We also launched our special purpose credit program to help minority homeowners refinance mortgages that Wells Fargo currently services. We continue to support our small business customers through this time of uncertainty, including launching the Small Business Resource Navigator, which connects small business owners to potential financing options and technical assistance through community development financial institutions across the country. We are also helping women entrepreneurs by doubling our support for women-owned businesses through the Connect to More program with complimentary mentorship opportunities. We published our inaugural Diversity, Equity, and Inclusion Report, which highlights the meaningful positive results we've made on our DE&I initiatives. For example, in the U.S., our external hiring of individuals from racially or ethnically diverse populations increased by 27% in 2021 compared to 2020, and approximately one-third of all internally promoted executives last year were racially or ethnically diverse. As I've said in the past, advancing DE&I at Wells Fargo is a long-term commitment, not a project, and we continue to pursue many of the initiatives in the report and look for ways to deepen our impact. Let me just make some summary comments before turning it over to Mike. The Federal Reserve's commitment to an aggressive rate hike cycle as a means to tame high persistent inflation continues to fuel market volatility and is expected to slow the economy, which will impact our consumer and commercial customers. Despite the economic environment, I remain optimistic about our future. Credit quality remains strong, and we expect net interest income growth to continue given rising interest rates, which should more than offset any further near-term pressure on non-interest income. We remain on target to achieve a sustainable 10% ROTCE, subject to the same assumptions we've discussed in the past on a run rate basis in the second half of this year, and then we will discuss our path to 15%. This year's Federal Reserve stress test confirmed our strong capital position and our ability to support our customers and communities while also continuing to return excess capital to shareholders through dividends and common stock purchases. As we previously announced, we expect to increase our third quarter common stock dividend by 20%, the 30 cents per share, subject to approval by the company's board of directors at its regularly scheduled meeting later this month. I will now turn the call over to Mike.